selise's blog


A Note on Healthcare Costs

June 22nd, 2009 by selise

The human costs of our current healthcare system is measured in tens of thousands of unnecessary deaths, hundreds of thousands of medical bankruptcies, lost jobs and untold suffering throughout the country.

We’re being told that reform to provide comprehensive universal healthcare is too expensive. That we can’t afford it. But that’s a damn lie. To do both though — control costs and provide universal healthcare — we’re going have to make some changes and there are powerful interests aligned against us.

So, let’s talk about cost (*).

Via Uwe Reinhardt, as of 2007 our total national health care expenditures were something like $2.3 trillion. For the past 40 years that number has been growing on average 4.4% a year while our GDP, even before our current economic crisis, was only growning on average 2% per year.

This means that our total national healthcare expenditures are growing almost 2.5% faster than GDP. The chart below shows what this means for the growth of healthcare costs as a percent of GDP:

Total Expenditure %GDP

Not only do we spend far more than Canada on healthcare (even though our system leaves tens of millions without insurance and many more underinsured), but also our costs are growing much faster than Canada’s (and other industrialized countries). Our current spending on health care is now something like 17% of GDP. If prior growth rates were to continue for another 40 years, health care costs would consume a third of GDP.

Here’s another chart, showing how total national health care expenditures have grown much faster than the rate of inflation (I converted CMS data to 2007 dollars, see also Reinhardt’s figure 3 in pdf):

Total Expenditure 2007$

This chart shows something else — how the total amount we pay for healthcare (through our taxes, insurance premiums, direct fee for service, etc.) breaks down into component public and private budgets.

When we talk about controlling costs, it’s not enough to focus on only one component (Senators especially seem to like to talk about the federal budget figures as though that’s all that matters). If we do that, we’re liable to get cost shifting, not cost control. We have to think about controlling total national expenditures and what that means for all the components — fed and state taxes, employer costs (to insurance), household budgets (insurance, copays, coinsurance, deductibles, etc).

To make informed policy decisions, we need a side by side comparison of all the various proposals (status quo, single payer, etc) that includes projections for:

  • total national cost (including %GDP)
  • cost to the federal government
  • cost to state and local governments
  • cost to employers
  • cost to households
  • number of people covered, uninsured, underinsured

The Congressional Budget Office can do this kind of analysis for Congress (and for us). But that, unfortunately, hasn’t been happening. As a result we’re getting plenty of talking points and not enough real analysis. More on this up next courtesy of DrSteveB.


(*) note: the story is a lot more complicated that the direct costs described here, but I’ll leave that discussion to earlofhuntingdon

x-posted at oxdown

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